Historic Cap-and-Trade Announcement from China

President Xi Jinping of China made an historic announcement to introduce a cap-and-trade system at the United Nations General Assembly meeting this week.

Cap-and-trade, an idea that President Obama failed to implement in the United States, is a market-based system designed to curb carbon emissions and fight climate change. It provides carbon-emitting corporations a number of credits with which corporations are allowed to pollute. If a corporation exceeds its given number of credits, it must buy more from the government; if a corporation stays within its limit, however, it can then sell its excess credits to other corporations.

Ideally, these credits would be sold on a free market, which makes cap-and-trade an innovative way to fight climate change. It is ironic, then, that an officially authoritarian and Communist country such as China is embracing this system, but it points to the balance between continued spectacular economic growth and managing the devastating pollution that such growth entails. Beneath this delicate balancing act is the growing discontent among millions of Chinese who live in some of the most polluted cities in the world.

While China was achieving double digit GDP growth rates at a time when most of the world was slowing down, most Chinese suffered through such pollution; it becomes easier to deal with such problems in an undemocratic country when personal incomes and life prospects improve so dramatically. This trend, however, has only proven true up to a certain point. Now that economic growth is slowing down in China and a new middle class is emerging, ordinary Chinese people are often more vocal about their demands. A growing number of protests over the past few years have been specifically about environmental issues, among others such as inequality.

Exacerbating the issue are several factors of modern Chinese society: a weak tradition of the rule of law, rampant corruption, and an existentialist fear of the Communist Party to see anything as democratic as street protests. The solution up until recently has been to clamp down on such protests at a local level. With stories about environmental protests breaking out regularly on Weibo, however, the Chinese Twitter, most of the world knows of China’s dilemma, including Chinese citizens themselves. Modern communication and its empowerment of the individual and China’s own economic growth and pollution have combined to create a perfect storm. In many ways, environmental protection has become a test of the Communist Party’s ability to adapt to a China that is very different from when Tiananmen Square occurred.

The cap-and-trade system, set to be introduced by 2017, is a bold step for China for a few reasons: it pressures other developed countries and India to enact their own methods of combatting climate change, it pushes China ever closer to operating like an official capitalist economy, and it may just be enough to quell protests. The latter is perhaps the most important. Many analysts have predicted that China will inevitably move towards a more democratic system of governing as its economy and middle class grow. China has so far defied expectations, but it clearly cannot afford widespread and prolonged crackdowns on its citizens. Such behavior would be condemned by the international community and potentially be bad for business and foreign investment. This cap-and-trade represents a middle ground that China can walk for now.

If it is successful, then it will be a victory for pollution weary Chinese and for the broader issue of climate change, while at the same time legitimizing the Communist Party’s control over China.

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